7 reasons your credit score goes down

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When it comes to personal finance – your credit score can play an important role in a lender’s decision to offer you credit. This tool allows lenders to determine whether you qualify for products such as a credit card, loan or mortgage.

Having a strong credit history, with a good track record of keeping up with your payments, could help to further improve your chances of being accepted for credit should you ever need it.

Credit scores can change all the time so if your credit score dropped, there could be a number of different factors that caused it.

 

Why does a credit score go down?

Your credit score is always being assessed in alignment with any financial decisions you make.

In most cases, your credit score can go down when credit reference agencies are informed of any ‘negative’ information by lenders you’re associated with.

But what is ‘negative’ information?

This tends to be anything that could make you seem to be a less reliable borrower. Some of the main reasons your credit score goes down might include:

  1. You applied for new credit
  2. You have repeated hard credit searches
  3. You were late or missed a payment
  4. You reached your credit limit
  5. You closed an old account
  6. You have inaccurate information on your credit report
  7. You have an account with someone who has a poor credit history

Of course, there are many factors that can affect your credit score, but these are some of the more common to look out for - especially if you’ve noticed any recent changes.

 

 

  1. You applied for new credit

    Before opening a new line of credit, a lender will carry out a hard credit check on your report. A hard credit check will leave a footprint visible to other lenders and can impact your credit history.  Before you apply, some lenders may offer the option to carry out a soft search which does not impact your credit report so you can see how likely it is that you’ll be accepted. It is then only when you formally apply for the credit that the hard search is carried out.

    A new line of credit could affect your credit score in the short term but as long as you’re able to make the regular payments in full and on time - your credit score should soon recover. However, if you try to open too many lines of credit over a small period, it won’t give your credit score time to recover.

  2. You have repeated credit searches

    It’s the same principle as explained in reason 1. Multiple attempts to get new credit can be reflected in the number of searches lenders will run to get an insight into your credit background.

    If you apply for lots of credit in a short space of time that require lots of hard searches on your report it could give the impression that you’re too keen to borrow and cause lenders to question your financial situation.

    So, if you find yourself in this situation, it might be worth holding back until your credit score recovers and search for alternative ways to boost your finances in the meantime. To avoid unnecessary searches, try to only apply for credit when you need and can afford it, and try to focus on credit that you have a good chance of getting approved for. Alternatively, you can choose to use a provider who can carry out a soft search. This will help you to find out the likelihood of being accepted for credit before you apply without impacting your credit rating so you can shop around for the right option for you.

  3. You were late or missed a payment

    This is one of the more obvious reasons as to why your credit score might have dropped.

    When it comes to maintaining your credit score - stability and reliability are really important. Lenders can measure this by checking you’ve managed to make all of your required payments on time. Even just one missed or late payment can negatively impact your credit score so it’s important to keep on track with your payments.

    Your credit score is always under scrutiny, so it’s important that you always make your payments in full and on time every month.

    If during the Coronavirus pandemic you’ve applied for a payment deferral with your lender before 31 March 2021, this may be reflected differently on your credit report. However, if you’ve already paused your payments for six months, any further reduction or payment deferral is likely to be visible on your credit report. For more information see Experian’s guide on payment deferrals

    If you have any queries regarding payment deferrals and how it affects your credit report, talk to your lender.
  4. You reached your credit limit

    Expensive sums on your credit card can have an impact on your ‘credit utilisation ratio’. Your credit utilisation ratio is calculated based on the total amount of credit across all balances divided by the total credit limit across all of those accounts.

    Maxing out your credit limit, or a spike in your credit utilisation ratio can show instability - and many lenders and credit reference agencies will take this into account. The lower your credit utilisation ratio remains, the better - as it indicates that you’re doing a good job of managing your financial responsibilities and not overspending.

  5. You closed an old account

    If you’ve noticed a slight dip in your credit score and you’ve recently closed an account, this could be the reason why. Closing a  credit card for example could increase your credit utilisation ratio as it could reduce your overall available credit. Credit utilisation refers to the amount of credit you have used compared with how much credit you have been extended by a lender. Your credit utilisation ratio is the amount you owe divided by your credit limit. For example, if you have an overall credit limit of £2,000 and you use £1,000, your credit utilisation is 50%. However, if you cancel a card, your limit is reduced to £1,500, you’ll be using 75% of

    That being said, it doesn’t mean you can’t close an old account and in some cases it may be the right thing for you to do if you want to responsibly limit the amount of credit you can use.  However, you may want to be careful about how you do it. Keeping hold of long-held and well-managed credit accounts can improve your score with some lenders as it shows you’ve been a reliable borrower in the past, which may suggest you’re likely to keep up with your repayments. It’s important that you make sure you’ve paid off any outstanding balances before trying to close an account as this can lead to missed payments, further affecting your credit score.

  6. You have inaccurate information on your credit report

    This is not uncommon - and be quite an easy one to fix.

    Your credit report has a massive influence on your credit score - and therefore your ability to get credit in general. As a result, it’s important to make sure it’s error-free and up to date. Inaccurate information can be detrimental - leaving you with a lower credit score than you should have.

    If you suspect this to be the case, your first port of call is to access and check your credit report via one of the many credit reference agencies available (you can usually get it for free). They all have procedures in place to deal with complaints regarding any inaccurate information and are willing to make changes if needed - so it’s definitely worth a check!

  7. You have an account with someone who has a poor credit history

    While there are obvious advantages to having joint accounts and credit responsibilities in place, there are also some drawbacks.

    In the context of credit scoring - opening a joint account means that you’ll be ‘co-scored’.

    This is only an issue if your partner has a weaker credit history than you (and vice versa). If you both have a good track record when it comes to credit and continue to maintain this throughout the existence of your joint account, your credit score shouldn’t drop.

    However, when it comes ‘co-scoring’, the poor spending behaviour of one person can negatively affect the credit score of the other person in the same way. So, it’s worth bearing this in mind when you commit to opening a joint account - whether that’s a bank account, or mortgage.

Monitor your credit score

Regularly monitoring your credit score is a good way to determine whether your spending behaviour is having any sort of negative impact.

This can help you recognise when you need to change your approach towards your finances to help you to maintain a healthy credit score - whether that’s an improvement in keeping up with payments or keeping your credit usage to a minimum. It’s also important to keep track of it in general, especially if you’re anticipating applying for credit in the near future.

As mentioned above, it might even be worth saving this page in your browser bookmarks to refer back to if you do notice any unexpected fluctuations in your credit rating.

 

The impact of your credit score

Your credit score is important - and therefore you should never take any sudden drops lightly.

As we’ve already covered, your credit score is key when it comes to borrowing money and accessing financial products that you can benefit from.

Your credit score can also be leveraged to get better deals on loans and credit cards. You could receive a better interest rate with a stronger credit score, for example - so keeping on top of it and having an awareness of how it works is always beneficial.

Improving your credit score

From paying your bills on time to simply making sure you’re on the electoral roll - there are a variety of things you could do to improve your credit score.

You can find a list of things to consider in our:

Ultimate guide to credit checks and searches